Opinion
DOCKET NO. A-4170-14T3
04-19-2016
ALEX SCAMARDELLA and SHIRLEY SCAMARDELLA, h/w, Plaintiffs-Respondents, v. LEGAL HELPERS DEBT RESOLUTION, L.L.C. a/k/a THE LAW FIRM OF MACEY, ALEMAN, HYSLIP AND SEARNS, L.L.C.; ECLIPSE SERVICING, INC. f/k/a ECLIPSE FINANCIAL, INC.; THOMAS G. MACEY; JEFFREY J. ALEMAN; JASON E. SEARNS; JEFFREY HYSLIP; THOMAS M. NICELY; ALANA M. CARRION; MIDFIRST BANK; BANK OF OKLAHOMA, N.A., Defendants, and GLOBAL CLIENT SOLUTIONS, L.L.C.; COMERICA BANK; and ROCKY MOUNTAIN BANK AND TRUST, Defendants-Appellants.
John H. Pelzer (Greenspoon Marder, P.A.) of the Florida bar, admitted pro hac vice, argued the cause for appellants (Morgan Melhuish Abrutyn and Mr. Pelzer, attorneys; Shaji M. Eapen, of counsel; Mr. Eapen and Mr. Pelzer, on the briefs). Joseph M. Pinto argued the cause for respondents (Polino and Pinto, P.C., attorneys; Mr. Pinto, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Lihotz and Nugent. On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-2402-14. John H. Pelzer (Greenspoon Marder, P.A.) of the Florida bar, admitted pro hac vice, argued the cause for appellants (Morgan Melhuish Abrutyn and Mr. Pelzer, attorneys; Shaji M. Eapen, of counsel; Mr. Eapen and Mr. Pelzer, on the briefs). Joseph M. Pinto argued the cause for respondents (Polino and Pinto, P.C., attorneys; Mr. Pinto, on the brief). PER CURIAM
Defendants Global Client Solutions, L.L.C., Comerica Bank, and Rocky Mountain Bank and Trust appeal from an April 24, 2015 order denying their motion to compel arbitration in this contract action, filed by plaintiff Alex Scamardella. Plaintiff entered into a debt adjustment contract with defendant Legal Helpers Debt Resolution, L.L.C. (LHDR) to negotiate a settlement with and satisfy the outstanding debts due to his creditors. As part of LHDR's services, plaintiff was sent a separate account application to establish a special purpose bank account deposited in defendant Rocky Mountain Bank and Trust. The account was designed to allow plaintiff to save funds to resolve his obligations. The account agreement executed by plaintiff contained an arbitration provision. Defendant Global Client Solutions, L.L.C., as a third-party account administrator, provided account maintenance services. Once established, the account was ultimately transferred to defendant Comerica Bank. Plaintiff alleged LHDR did not perform as agreed and initiated this action.
On January 20, 2015, co-plaintiff Shirley Scamardella was dismissed for lack of standing as she was not a party to the contract.
On October 2, 2014, defendant Legal Helpers Debt Resolution, L.L.C., was dismissed from the case after filing a voluntary petition seeking Chapter 7 bankruptcy relief. We are told defendant Eclipse Servicing, Inc. defaulted. The remaining defendants, other than appellants, were dismissed during discovery.
Plaintiff's complaint alleged violations of New Jersey's Racketeer Influenced and Corrupt Organizations Act, N.J.S.A. 2C:41-1 to 41-6.2, the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20, the New Jersey Debt Adjustment and Credit Counseling Act, N.J.S.A. 17:16G-1 to -9, and claims for civil conspiracy, illegal contract, unjust enrichment, breach of fiduciary duty, unconscionability, and common law fraud. Further, defendants appeal from a second order, denying their request to stay proceedings pending appeal.
The Law Division concluded the arbitration clause in the agreement signed by plaintiff failed to comply with the minimal disclosure requirements for waiver of a jury trial as outlined by the Supreme Court in Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430, 447 (2014), cert. denied, ___ U.S. ___, 135 S. Ct. 2804, 192 L. Ed. 2d 847 (2015) (holding an arbitration clause to be enforceable "at least in some general and sufficiently broad way, must explain that the plaintiff is giving up her right to bring her claims in court or have a jury resolve the dispute").
On appeal, defendants seek reversal. Citing to AT&T Mobility, L.L.C. v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011), defendants argue Atalese "creates a presumption against arbitration," which is incompatible with the United States Supreme Court's arbitration-related precedent, an area asserted to be preempted by the Federal Arbitration Act (FAA), 9 U.S.C.A. §§ 1 to 16. The issue is a legal one subject to plenary review. Barr v. Bishop Rosen & Co., 442 N.J. Super. 599, 605 (App. Div. 2015), certif. denied, 224 N.J. 244 (2016) ("The existence of a valid and enforceable arbitration agreement poses a question of law, and as such, our standard of review of an order denying a motion to compel arbitration is de novo."). We affirm.
The question addressed in Concepcion was whether Section 2 of the FAA "pre-empts California's rule classifying most collective-arbitration waivers in consumer contracts as unconscionable." Concepcion, supra, 563 U.S. at 340, 131 S. Ct. at 1746, 179 L. Ed. at 751. The United State Supreme Court held "[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA." Id. at 344, 131 S. Ct. at 1748, 179 L. Ed. at 754. --------
In Atalese, the plaintiff consumer contracted with the defendant debt-adjustment services provider and, when a dispute arose, filed an action alleging violations of the CFA and the Truth-in-Consumer Contract, Warranty and Notice Act, N.J.S.A. 56:12-14 to -18. Atalese, supra, 219 N.J. at 435-36. The Court held the agreement's omission of language advising a consumer that the right to litigate in court was waived in favor of arbitration rendered the arbitration clause unenforceable. Ibid. The Court emphasized the importance of providing reasonable notice "clearly and unambiguously" so that consumers can be adequately notified arbitration is their exclusive remedy and their right to seek judicial review of disputes is waived. Id. at 448. Further, the Court emphasized that arbitration clauses, which are essentially contractual provisions, must be the product of mutual assent, which necessarily requires parties understand the terms to which they purport to agree. Id. at 442-43.
The Court explained these requirements applied universally to contractual provisions, stating:
The requirement that a contractual provision be sufficiently clear to place a consumer on notice that he or she is waiving a constitutional or statutory right is not specific to arbitration provisions. Rather, under New Jersey law, any contractual "waiver-of-rights provision must reflect that [the party] has agreed clearly and unambiguously" to its terms.
. . . .
Arbitration clauses are not singled out for more burdensome treatment than other waiver-of-rights clauses under state law. Our jurisprudence has stressed that when a contract contains a waiver of rights — whether in an arbitration or other clause — the waiver "must be clearly and unmistakably
established." Thus, a "clause depriving a citizen of access to the courts should clearly state its purpose." We have repeatedly stated that "[t]he point is to assure that the parties know that in electing arbitration as the exclusive remedy, they are waiving their time-honored right to sue."Turning to the matter at hand, we examine the contracts which defendants maintain support dismissal of plaintiff's action in favor of arbitration.
[Id. at 443-44 (citations omitted) (alterations in original).]
The special purpose account application provided:
I hereby apply for and agree to establish a special purpose account (the "Account") with Rocky Mountain Bank & Trust of Colorado Springs, Colorado ("Bank") for the purpose of accumulating funds to repay my debts in connection with a debt management program (the "Program") sponsored by the organization identified below (the "Sponsor"). I understand that the Account's features, terms, conditions and rules are further described in an Account Agreement and Disclosure Statement that accompanies this Application (the "Agreement"). I acknowledge that I have received a copy of the Agreement; that I have read and understand it; that the Agreement is fully incorporated into this Application by reference; and that I am bound by all of its terms and conditions.The related account agreement referencing arbitration states:
Arbitration and Application of Law: In the event of a dispute or claim relating in any way to this Agreement or our services, you agree that such a dispute shall be resolved by binding arbitration in Tulsa[,] Oklahoma
utilizing a qualified independent arbitrator of Global's choosing. The decision of an arbitrator will be final and subject to enforcement in a court of competent jurisdiction.Defendants, although recognizing the clauses do not mention the waiver of a jury trial, nevertheless urge enforcement because the clause unambiguously provides disputes be addressed in arbitration, not the courts. Defendants ask we abrogate Atalese because its "unintended effect . . . inadvertently reverses the presumption in favor of arbitration into a presumption against arbitration," contrary to the clearly established principles in the FAA and federal jurisprudence. We decline the invitation. See In re State in Interest of A.C., 115 N.J. Super. 77, 84 (App. Div. 1971) ("As an intermediate appellate tribunal, we adhere to the decision of our Supreme Court . . . . Any departure should be undertaken 'by the court of last resort, and not by the Appellate Division.'" (quoting Casale v. Hous. Auth., City of Newark, 42 N.J. Super. 52, 62 (App. Div. 1956)); accord Gonzalez v. State Apportionment Comm'n, 428 N.J. Super. 333, 362 (App. Div. 2012), certif. denied, 213 N.J. 45 (2013).
Defendant's contention ignores the basic concept that arbitration is grounded in contract principles. "As a matter of both federal and state law, 'arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" Angrisani v. Fin. Tech. Ventures, L.P., 402 N.J. Super. 138, 148 (App. Div. 2008) (quoting AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648, 106 S. Ct. 1415, 1418, 89 L. Ed. 2d 648, 655 (1986)). Accordingly, basic contract principles govern the interpretation of an arbitration clause. Hojnowski v. Vans Skate Park, 187 N.J. 323, 342 (2006); Alamo Rent A Car, Inc. v. Galarza, 306 N.J. Super. 384, 390-91 (App. Div. 1997). While federal policy favors arbitration agreements, federal courts rely on state law when addressing issues of contract validity and enforceability. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686, 116 S. Ct. 1652, 1655, 134 L. Ed. 2d 902, 908 (1996).
The FAA, which was enacted "to abrogate the then-existing common law rule disfavoring arbitration agreements and to place arbitration agreements upon the same footing as other contracts," Hirsch v. Amper Fin. Servs., LLC, 215 N.J. 174, 187 (2013) (quoting Martindale v. Sandvik, Inc. 173 N.J. 76, 84 (2002)), provides agreements to arbitrate are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C.A. § 2 (emphasis added). This provision served as the opening statement in Concepcion, supra, 563 U.S. at 336, 131 S. Ct. at 1744, 179 L. Ed. 2d at 749 (quoting 9 U.S.C.A. § 2).
Our Supreme Court respected this concept in Atalese, noting the FAA requires courts "place arbitration agreements on an equal footing with other contracts and enforce them according to their terms," Atalese, supra, 219 N.J. at 439. Atalese does not prohibit the arbitration of a particular type of claim; it merely explains the fundamental requisites to assure a party knowingly waives the right for judicial determinations of disputes in order to proceed with arbitration. See Preston v. Ferrer, 552 U.S. 346, 353, 128 S. Ct. 978, 983, 169 L. Ed. 2d 917, 925 (2008) (holding when state law prohibits arbitration of a particular type of claim, the FAA displaces the conflicting law). The requirement that an arbitration clause inform the non-drafting party the agreement foregoes a jury trial or determination by judges, cannot be said to be incompatible with a policy favoring arbitration or to eviscerate arbitration agreements. Rather, the standard relies upon an array of contract jurisprudence in contexts unconnected with arbitration.
Accordingly, we reject as unfounded the policy-laden contentions offered by defendants suggesting Atalese imposes "a doctrine . . . applied in a fashion that disfavors arbitration" inconsistent with the FAA because its application results in "a disproportionate impact on arbitration agreements." Concepcion, supra, 563 U.S. at 342, 131 S. Ct. at 1747, 134 L. Ed. 2d at 752. No evidential support is provided showing arbitration provisions have been invalidated at a higher rate than other contract provisions following Atalese. See e.g., Mortensen v. Bresnan Communications, LLC, 722 F.3d 1151, 1162 (9th Cir. 2013) (invalidating a Montana rule premised on state public policy requiring a heightened standard for waivers of fundamental rights to determine whether an agreement comports with a consumer's reasonable expectations after finding, in part the requirement was most regularly applied to adhesive arbitration agreements, "invalidating them at a higher rate than other contract provisions" and thus imposed a disproportionate impact on arbitration clauses).
Atalese merely requires notice: an arbitration clause must inform both parties of the scope of agreement to be legally enforceable and thus demonstrate there was "a meeting of the minds." Morton v. 4 Orchard Land Trust, 180 N.J. 118, 120 (2004); see also Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 1255, 103 L. Ed. 2d 488, 499 (1989) (holding parties are not required "to arbitrate when they have not agreed to do so"). As is the case in all agreements,
when a contract contains a waiver of rights — whether in an arbitration or other clause — the waiver "must be clearly and unmistakably established." Thus, a "clause depriving a citizen of access to the courts should clearly state its purpose." We have repeatedly stated that "[t]he point is to
assure that the parties know that in electing arbitration as the exclusive remedy, they are waiving their time-honored right to sue."See also Knorr v. Smeal, 178 N.J. 169, 177 (2003) ("An effective waiver requires a party to have full knowledge of his legal rights and intent to surrender those rights.").
[Atalese, supra, 219 N.J. at 444 (alteration in original) (citations omitted) (quoting Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124, 132 (2001)).]
Certainly the arbitration provision under consideration does not identify a clear and unmistakable waiver of the right to have disputes heard in a judicial forum. Atalese, supra, 219 N.J. at 444; see also Dispenziere v. Kushner Cos., 438 N.J. Super. 11, 20 (App. Div. 2014) (holding an arbitration agreement unenforceable because it "failed to provide [the] plaintiffs any notice that they were giving up their right to seek relief in a judicial forum"). The lack of notice defeats any assertion the parties agreed to forgo resolution outside an arbitral forum.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION